Mr. Sprout, Inc. v. U.S.
| Decision Date | 25 October 1993 |
| Docket Number | No. 959,D,959 |
| Citation | 8 F.3d 118 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | MR. SPROUT, INC.; Tray Wrap, Incorporated; Country Wide Produce, Incorporated; G & T Terminal Packaging Co., Inc., Petitioners, v. UNITED STATES of America, and Interstate Commerce Commission, Respondents, Consolidated Rail Corporation; Atchison, Topeka, and Santa Fe Railway Company, Intervenors. ocket 92-4160. |
Elkan Abramowitz, New York City (Christopher J. Gunther, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York City, David J. Goldberg, Cohen, Shapiro, Polisher, Shiekman & Cohen, Lawrenceville, NJ, of counsel), for petitioners.
Craig M. Keats, Associate Gen. Counsel, I.C.C., Washington, DC (Louis Mackall, V. Robert S. Burk, Gen. Counsel, I.C.C., Washington, DC, J. Mark Gidley, Acting Asst. Atty. Gen., John J. Powers, III, John P. Fonte, Dept. of Justice, Washington, DC, of counsel), for respondents.
Jonathan M. Broder, Consolidated Rail Corp., Philadelphia, PA (Constance L. Abrams, Consolidated Rail Corp., Philadelphia, PA, Paul A. Cunningham, Robert M. Jenkins, III, Harkins Cunningham, Washington, DC, of counsel), for intervenor Consolidated Rail Corp.
Before: KEARSE, CARDAMONE and PIERCE, Circuit Judges.
This appeal concerns the shipment of potatoes by rail into the New York City metropolitan area. A group of shippers blame the railroad for the fact that an appreciable amount of this product is received in unsaleable condition. Because potatoes are plentiful and a relatively inexpensive vegetable, a good many consumers have a decided attachment to them so that the demand for this produce is large. Not only are potatoes good to put in the mouth to eat, but the word "potatoes" itself is also, so Dickens tells us, like papa, prunes and prism--a "very good word[ ] for the lips." Charles Dickens, Little Dorrit (Part Two), in 8 The Works of Charles Dickens 67 (Collier & Son ed. 1900).
However good in whatever way potatoes may be for the lips, the shipment of these vegetables has not proved in this case to be good for anyone's pocketbook. For over a decade the shippers have mounted such an intensive barrage of lawsuits and administrative proceedings against the railroad for damages on account of claimed spoilage that the railroad has imposed a surcharge on every shipment of potatoes destined for these particular shippers to cover its litigation expenses. This costly legal warfare culminated in a ruling by the Interstate Commerce Commission (ICC or Commission) in July 1992, from which this appeal has been taken, upholding the surcharge and further ruling that it lacked jurisdiction over the practices of the agencies charged with inspecting railroad cars for alleged spoilage to produce en route to shippers.
G & T Terminal Packaging Co., Mr. Sprout, Inc., Tray Wrap, Inc., and Country Wide Produce, Inc. (collectively petitioners, wholesalers, shippers, or G & T) are closely related produce wholesalers located at Kingsbridge, Bronx, New York. G & T, Mr. Sprout, and Tray Wrap are owned or directly controlled by one Anthony Spinale, and Country Wide is owned by Gary Speier, an employee of G & T and Tray Wrap. These potato wholesalers receive their product via the Consolidated Rail Corporation (Conrail), which carries potatoes grown in the western states to the east coast and into the wholesaler's Kingsbridge facilities. There the potatoes are repackaged for consumers and sold to retailers in the New York City metropolitan market. Conrail is the last link in a rail G & T and Conrail have had an acrimonious history. According to Conrail, petitioners in the early 1980s filed loss and damage claims--which compensate a receiver for economic losses from shipment delays or produce spoilage, see 49 U.S.C. § 11707(a)(1) (1988)--on nearly every carload of produce shipped to them. Conrail claims that the damages sought--$4.2 million in a pending lawsuit in the United States District Court for the Southern District of New York--are higher than those of all the other produce shippers served by the railroad combined. The ICC reports that historically about 6 percent of G & T's damage claims are paid. In addition to damage suits against Conrail, G & T has withheld payment on "demurrage and detention" charges which compensate the railroad for extra time the wholesaler takes in unloading the railcars.
carrier chain of railroads transporting this produce.
As a response to all this claims activity, Conrail in May 1983 imposed a surcharge of over $500 on every railcar destined to the wholesalers' Kingsbridge facilities. This surcharge raised the shippers' cost of transporting a carload of potatoes from Idaho to the Bronx to $5,800. Conrail insists the surcharge merely covers the extra cost of defending against petitioners' damage claims. When G & T began receiving potato shipments in its nearby Hunts Point facility, Conrail imposed the same surcharge on the wholesaler at that location as well.
As a result of the surcharge petitioners filed suit against Conrail in March 1984 in New Jersey district court seeking to revoke the exemption from ICC regulation of the shipment of potatoes by rail. G & T says it went to court in reliance on an October 1983 letter from the ICC in which the Director of the Office of Proceedings stated that his agency no longer had jurisdiction over rate disputes with the deregulated railroads. In March 1986 the ICC formally reversed this position and asserted that it had exclusive jurisdiction where the challenged rates had been deregulated under 49 U.S.C. § 10505 (1988). The ICC's position was upheld by the Third Circuit and petitioners' common law claims against Conrail were dismissed. See G. & T. Terminal Packaging Co. v. Consolidated Rail Corp., 830 F.2d 1230, 1233-36 (3d Cir.1987) (G & T I ), cert. denied, 485 U.S. 988, 108 S.Ct. 1291, 99 L.Ed.2d 501 (1988). The Third Circuit also held that the $500 plus surcharge did not violate the Interstate Commerce Act because a railroad could take the cost of damage claims into account when it set rail rates, id., at 1233, and dismissed G & T's constitutional due process claims because Conrail is not a state actor. Id., at 1236.
In addition to its dispute with Conrail over the surcharge and its many damage claims, the shippers contend that Conrail's inspection reports documenting the condition of produce upon arrival in New York are fraudulent. The challenged reports are prepared by several agencies--the Transportation Inspection Agency, Inc. (TIA) (formerly Railroad Perishable Inspection Agency or RPIA), and the Merchants Dispatch Transportation Corporation (MDT). MDT is a wholly-owned subsidiary of Conrail and TIA is controlled by a railroad association of which Conrail is a member. The wholesalers insist the agencies prepare false inspection reports because Conrail has instructed them to remove all language imputing blame to the railroad. Conrail points out that the inspectors are not employed to give their opinion as to blame, but simply to document facts, such as the temperature in a railcar and apparent produce spoilage. G & T has lost all of its several lawsuits on this issue in state and federal courts, and in G & T Terminal Packaging Co. v. Consolidated Rail Corp., 719 F.Supp. 153, 155-57 (S.D.N.Y.1989) (G & T II ), the district court dismissed petitioners' fraud claims on the grounds of res judicata and collateral estoppel.
The shippers filed a petition with the ICC against Conrail in July 1988 to reregulate the railroad's Kingsbridge and Hunts Point traffic. The complaint was amended a year later to add the Atchison, Topeka, and Santa Fe Railway Company, which ships russet potatoes from California. The amended claim raises issues identical to those against Conrail. In February 1991 an Administrative Law Judge (ALJ), acting for the ICC, recommended reregulation under 49 U.S.C.
§ 10505(d) (1988). The ALJ found that Conrail discriminated in its rating practices and had imposed its railcar surcharge to discourage the shippers from exercising their right to file damage claims. The ALJ also found that Conrail engaged in unreasonable practices in violation of 49 U.S.C. § 10701(a) (1988) by endorsing the disputed inspection reports
On appeal, the Commission reversed the ALJ in an order and opinion entered July 24, 1992. The ICC held that Conrail did not have market power over these shippers, which is a prerequisite for reregulation. It also held that Conrail's surcharge was legitimate and that the shippers had failed to present a prima facie rate discrimination case under 49 U.S.C. § 10741 (1988). The ICC ruled it lacked "unreasonable practice jurisdiction" over the inspection agencies. It is from this order that petitioners appeal.
In the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), Pub.L. No. 94-210, 90 Stat. 31 (1976), and the Staggers Rail Act of 1980 (Staggers Act), Pub.L. No. 96-448, 94 Stat. 1895 (1980), Congress directed the ICC to reduce its supervision of the railroad industry so that carrier rates and practices would be disciplined by market forces rather than government regulation. With these statutes, Congress gave the ICC authority to exempt categories of rail traffic from regulation where
(1) [it] is not necessary to carry out the transportation policy of section 10101a of this title; and
(2) either (A) the transaction or service is of limited scope, or (B) the application of a provision of this subtitle is not needed to protect shippers from the abuse of market power.
49 U.S.C. § 10505(a) (1988). Pursuant to that directive, the Commission exempted the movement of potatoes by rail from regulation in April 1980.
Once the ICC has decided to exempt a rail carrier from regulation, it retains the power to revoke that exemption, or reregulate the railroad, under 49 U.S.C. § 10505(d). The...
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